5.3 Billion Reasons Why Companies that Built Coal Plants Now Want to Tear Them Down

Meet the unlikely companies profiting off green opposition to coal

January 3, 2014

When societies shift, one sign is the physical structures that they choose to tear down. Starting in late 1989, Germans reduced the Berlin Wall to rubble. In recent years, a depopulated Detroit has razed thousands of vacant houses. Now, the United States is starting to rip out dozens of old coal-fired power plants—a physical manifestation of what’s said to be a revolutionary lurch toward a cleaner global energy system.

The scraping of these coal plants is a response to three forces: cheap domestic natural gas, tougher environmental regulations, and rising public opposition to dirty coal. Studies predict that over the next few years this process of “decommissioning,” as it’s politely known, will shut down perhaps 20 percent of U.S. coal-fired power-generating capacity—and will balloon into a multibillion-dollar demolition business.

Fans of American coal’s comeuppance are giddy. Environmental groups trumpet the imminent demise of what they consider a filthy, outmoded fuel. The companies in the business of tearing down old cold plants—often the same construction firms that profited in a different era by building coal plants—are salivating over the profits they expect by riding the reversal in King Coal’s fortunes.

But booming markets seldom go as smoothly as their boosters hope. And the increasingly hot U.S. market for coal-plant tear-downs may not be the unalloyed financial or environmental victory that its most ardent proponents are claiming. In recent months, plans to tear down some coal-fired power plants have quietly been put on hold because their economics have soured. What’s more, even to the extent the U.S. continues to shut down old coal plants, other parts of the world are building newer, bigger coal plants even faster.

Coal has powered the global economy for more than a century—and, for all the hype about coal’s ostensible demise, to a large extent it still does. The percentage of the world’s energy that comes from coal has continued to rise—to 29 percent in 2011 from 23 percent in 2000, according to the International Energy Agency. The share of global electricity that comes from coal is even higher—41 percent in 2011, up from 37 percent in 1990, the IEA says. (Besides being burned in power plants, coal is used in various industrial processes—for instance, in some countries, to produce liquid transportation fuel.)

In the U.S., coal demand fell 11 percent between 2011 and 2012, according to the IEA. In each of five states—Nevada, North Carolina, Ohio, Pennsylvania, and West Virginia—coal-fired power plants representing 1,000 megawatts or more of generating capacity were shut down in 2012 alone. (Federal estimates suggest that, on average, 1,000 megawatts of power will serve about 800,000 U.S. homes, though consumption tends to be much higher in some parts of the country.) Each of these five states with significant coal-plant shutdowns is politically important, so it’s a fair bet America’s retrenchment from coal will figure prominently in the 2016 presidential race.

The U.S. pullback from coal is likely to accelerate, at least for the next several years. Power plants representing roughly one-sixth of existing U.S. coal-fired electricity capacity are likely to be shut down through 2020, the U.S. Department of Energy’s Energy Information Administration has projected. (After 2020, the IEA predicts, coal-plant shutdowns will slow significantly, in part because natural-gas prices will rebound.) Other analysts peg coal-plant closings over the next few years somewhat higher or lower than the IEA’s figure.

Whatever the exact number, it’ll almost certainly be large. In October, several demolition companies sponsored a two-day conference to discuss the potential spoils at a Sheraton hotel by Baltimore’s Inner Harbor. On hand, according to the conference agenda, were executives from some of the nation’s largest utilities, there to trade tales of their experiences razing old coal plants. One session, according to the agenda, explored “best practices for outlining the community impacts associated with a decommissioning project,” including ”political sensitivities” about job losses and environmental fallout. Another probed the “challenges and opportunities created by the suspicion and/or actual presence of environmental contamination” at coal plants being shut down.

Burns & McDonnell, a Missouri-based firm that for years has built large infrastructure projects such as power plants, has a promotional piece on its website touting the firm’s similar expertise tearing them down. In one project it recently was involved in, Burns & McDonnell says, it “identified a large amount of high-value scrap metal for one plant, overlooked in the demolition contractor's estimate.” Selling that scrap metal, Burns & McDonnell says, defrayed demolition costs by several million dollars.

Decommissioned coal plants are, at their core, massive piles of scrap metal. It’s by selling this scrap that many demolition companies plan to turn a profit. Some companies actually are offering to pay coal-plant owners for the privilege of demolishing their plants, banking that they’ll sell the scrap on the open market for more than the demolitions cost them to carry out. Privately, however, some industry insiders who don’t want to be quoted say their plans to profit by tearing down coal plants and peddling the scrap are suffering now from a glut in scrap supply. A recent report on power-plant tear-downs by Navigant Research suggested this glut may worsen—which Navigant argued should induce companies to tear down coal plants faster. “Macro trends” in the broader scrap market “argue for decommissioning sooner rather than later,” Navigant wrote, “especially as the rising number of retiring plants is likely to increase the scrap metal on the market, potentially exerting further downward pressure on prices in the next few years.”

Big money is at stake. Navigant projected global revenue from coal-plant decommissioning will total $5.3 billion between 2013 and 2020—rising from $455 million in 2013 to $1.3 billion in 2016 and, after that, falling fast.

Yet Navigant flagged a potentially serious problem with the coming boom: environmental damage caused by companies that win contracts to tear down coal plants but don’t know how to do the work properly. One particular danger is coal-ash ponds. These massive repositories of coal-plant waste spilled into public consciousness on Dec. 22, 2008, when one ruptured at the Tennessee Valley Authority’s Kingston Fossil Plant in Roane County, Tennessee. It disgorged more than 5.4 million cubic yards of coal ash, according to state officials, covering more than 300 acres of nearby land and water. Coal ash, among a soup of other chemical substances lurking at coal plants slated for destruction, requires “specialized expertise” that many demolition companies don’t have, Navigant warned, adding: “The growing number of coal plant retirements is likely to attract firms with tangential expertise, who may find themselves bidding on or undertaking projects they are only semi-qualified to carry out.”

There’s an even more basic question about the ecological importance of America’s coal-plant shutdowns. Razing aging, inefficient U.S. coal plants should curb the kind of local pollution that causes coughing and more serious respiratory ailments. But it may not do much to fix what many regard as the biggest environmental threat of the day: climate change. That’s because, even as coal consumption declines over the next two decades in the U.S. and in other developed countries, it will rise many times more in China, India, and the rest of the developing world.

The big money in the U.S. coal-plant market right now is in tearing them down. But the even bigger money in much of the rest of the world is where it’s long been: in building them up.

Jeffrey Ball, a writer on energy and the environment, is scholar-in-residence at Stanford University’s Steyer-Taylor Center for
Energy Policy and Finance.